Reigning in Reckless Regulators Re: Unclaimed Property in California
The battle between regulators and life insurers over unclaimed property continues to rage in California. Last week, Thrivent Financial for Lutherans sued California’s Controller, John Chiang. While at least two other insurers have alleged that Chiang’s demands exceed his authority under California’s unclaimed property law, Thrivent has alleged that Chiang’s demands also violate Thrivent’s rights under both the California and United States Constitutions.
The DMF Does Not Implicate Unclaimed Property Statute
Thrivent first takes aim at the very idea that a search of the Social Security Administration’s Death Master File triggers unclaimed property obligations. Thrivent alleges that California’s unclaimed property statute contains two triggers for life insurance proceeds. First, under § 1515(a), unclaimed life insurance proceeds held by an insurer become payable to the state three years after they become “due and payable.” Section § 1515(c) separately provides that proceeds of a policy “not matured by actual proof of death” will be “deemed to be matured” once the “insured has attained, or would have attained if he or she were living, the limiting age under the mortality table on which the reserved is based.”
In other words, according to Thrivent, California’s unclaimed property statute already accounts for the possibility that an insured may die but that a beneficiary may fail to submit a death claim. The insurer may not retain those funds indefinitely but must instead remit those funds to the state in accordance with the limiting age trigger. Not only is there no obligation to search the DMF, according to Thrivent, but the DMF does not implicate the unclaimed property statute.
Controller Unilaterally Increases Insurers’ Burdens
Thrivent further alleges that California has acknowledged the limiting age trigger in previous versions of its Holder Handbook, which provides guidance to holders of unclaimed property. On September 13, 2013, however, after certain insurers began to question Chiang’s audit activity, the Holder Handbook was changed to suggest that a policy matures and proceeds become due and payable upon an insured’s death.
Thrivent also asserts that the latest edition of the Holder Handbook includes an “underground” regulation. In the recent edition, the Holder’s Handbook was amended to state for the first time that “[a]n insurer shall perform a comparison of its insureds’ life insurance policies, retained asset accounts, and contracts against a Death Master File, on at least a quarterly basis.” According to Thrivent, the Controller changed the guidance offered in the handbook despite the fact that the unclaimed property statute had not changed, and despite the fact that the Controller had not engaged in any administrative rulemaking regarding the dormancy trigger.
Controller’s Overly Broad Demands
After Thrivent received a notice of audit on August 4, 2013, it requested a meeting with the Controller to discuss the legal standard regarding the dormancy trigger. However, the Controller has refused to meet with the company and has “refused to provide Thrivent with the legal standard for the dormancy period trigger under section 1515 that will govern the scope of the audit.” Instead, the Controller’s outside attorney responded with a letter threatening to sue Thrivent for damages and penalties should there be “a failure by Thrivent to fully comply” with the Controller’s demands.
Less than two weeks later, Chiang demanded that Thrivent provide detailed information “on each and every life insurance policy issued by Thrivent, regardless of state or jurisdiction, that is currently in force or that has ever been in force at any time during the period from January 1, 1992 to June 13, 2013.” According to Thrivent, this request seeks information on more than six million life insurance policies, many of which could not conceivably lead to the discovery of unclaimed property.
Thrivent has asserted claims for declaratory relief regarding the dormancy trigger, the lawful scope of the Controller’s audit, and the “underground” regulation contained in the latest version of the Holder’s Handbook. In addition, Thrivent has asserted claims under the Due Process clauses of both the United States and California’s Constitutions.
 Complaint at ¶ 40 and Exhibit B, Thrivent Financial for Lutherans v. Chiang (Superior Court of California, City and County of San Francisco 2013) (Action No. CGC-13-535156).
 Compare State of California Unclaimed Property Holder Handbook, March 2013 to State of California Unclaimed Property Holder Handbook, September 2013. Complaint at ¶¶ 41-43 and Exhibits A and C.
 State of California Unclaimed Property Holder Handbook, September 2013 at 15.
 Complaint at ¶¶ 9 and 11.
 Complaint at ¶ 12 (quoting the Controller’s counsel’s letter to Thrivent dated September 23, 2013).